Exploiting the sun god for fun and profit – SunEdison’s solar plans for SA
South Africa is a good candidate for large scale solar energy projects, with it's clear skies and abundance of sunny days, and the South African government is making a big investment in a solar future. In particular, government is offering solar power companies long-term, fixed-price contracts and start-up capital in a bid to attract global developers. One such company, SunEdison, attracted by the incentives on offer, is planning on investing R2.4bn in a major project, the Boshoff Solar Park Project. SunEdison's Pashupathy Gopalan talks to Alec Hogg about the price of solar energy, and the attractions of renewable power. – FD
GUGULETHU MFUPHI: SunEdison announced it had secured a R1.8 billion in foreign debt funding from the Overseas Private Investment Corporation. This amounts to 75 percent of the R2.4 billion project cost for the Boshoff Solar Park Project. Pashupathy Gopalan, SunEdison's Vice President and Managing Director for South Asia as well as Sub-Saharan Africa, joins us now for more. Judging by the manner in which I pronounced your name and surname I got it right.
PASHUPATHY GOPALAN: You did fine.
GUGULETHU MFUPHI: Your entrance into the South African market – no doubt you received some subsidies with regard to that: what is the South African government doing to make it an attractive deal for you?
PASHUPATHY GOPALAN: The South African government has a renewable energy IPP program. They're attracting renewable developers from all over the world, including South African, to come in and set up solar power plants as well as other renewable power plants and feed electricity into the Eskom grid. They buy electricity that we feed in a 20-year contract – what we call a power purchase agreement. We've won the bid in both the first and second rounds. The project that we're talking about today for Boshoff in the Free State, is one of a very large project – 60 megawatt. In the solar universe, it's quite big. This should be built and essentially, we would feed electricity to Eskom for 20 years. We have a 20-year contract with Eskom now.
ALEC HOGG: At what price?
PASHUPATHY GOPALAN: I can give you a general guideline of what is happening in the price for solar, which is very interesting. In the first round of bidding that happened in 2011/2012 the pricing for solar electricity was approximately – for the industrial user on average – about 2.5 rand per unit of electricity per kilowatt-hour. In the second round where this project is, most projects have generally been in the range of 1.6/1.7 rand. The most recent third round, which was announced earlier this week – a few days back, is sub one rand per kilowatt-hour. This gives you the potential for solar, which is quite amazing because the subsidies have to be a lot less and the solar can become much more competitive and start contributing in a meaningful way to the South African energy needs.
ALEC HOGG: Is that for the whole 20-year period or just the starting point?
PASHUPATHY GOPALAN: No, it is for the entire 20-year period. It is a fixed price, which is another very good thing about solar energy.
ALEC HOGG: It's a fixed price of under one rand per kilowatt-hour for the entire 20-year period.
PASHUPATHY GOPALAN: That's right.
ALEC HOGG: I think we got a bargain.
PASHUPATHY GOPALAN: There will be other resources. Fortunately, you don't have to pay for a sun god. He delivers sunshine no matter what and there's no future contract unlike coal or other forms of resources like gas, where prices do tend to go up, given the supply and demand situation in the world. The beauty of solar access is that it's a very good natural hedge against future energy rises, so it also gives energy security to the country. That's not mentioning the jobs it will create as well as the socio-economic development in the region where you set up the plant.
GUGULETHU MFUPHI: Let's touch on the three billion US dollars that you've managed to raise in project financing. Where does that come from?
PASHUPATHY GOPALAN: For this particular project, the overall project cost is about 2.4 billion rand, out of which approximately 86/87 percent is essentially foreign direct investment. We, as an American company, are investing about 51 percent equity in the project and so is the US government through their Overseas Private Investment Corporation (OPEC), which is the United States government's developmental finance institution. They are the lender into the project, so they are investing close to 1.85 billion rand into the project, so the combination of OPEC, which is the US government, and us: we're contributing about 87 percent foreign direct investment into this project. The remaining shareholders – 49 percent are all local South African. GPF and PIC is a majority shareholder, followed by IH, which are trade unions, private investment, and Khulusani Trust, so we're very happy that we have sizeable and very renowned local South African investors as well in the project.